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New Payday loan rules mean good news for borrowers but less income for lenders

Tuesday, 15th July 2014

The cost of borrowing for users of pay day loans and other short term high cost forms of lending is expected to fall with the announcement today by the Financial Conduct Authority’s (FCA) of its proposals to curb areas of the industry’s activities.

The key points of these proposals, effective from 15the January 2015, are:

For new payday loans, including if they are rolled over, interest and fees must not exceed 0.8% per day of the amount borrowed

Fixed default fees cannot exceed £15 and the overall cost of a payday loan will never exceed 100% of the amount borrowed

Total cost cap of 100% - This will mean that borrowers struggling to repay their loans and on time, are protected from escalating debts and not have to pay back more in fees and interest than the amount borrowed.

Martin Wheatley, the FCA’s chief executive officer, said:

“For the many people that struggle to repay their payday loans every year this is a giant leap forward. From January next year, if you borrow £100 for 30 days and pay back on time, you will not pay more than £24 in fees and charges and someone taking the same loan for 14 days will pay no more than £11.20. That’s a significant saving.

“For those who struggle with their repayments, we are ensuring that someone borrowing £100 will never pay back more than £200 in any circumstance.

“There have been many strong and competing views to take into account, but I am confident we have found the right balance.

“Alongside our other new rules for payday firms – affordability tests and limits on rollovers and continuous payment authorities - the cap will help drive up standards in a sector that badly needs to improve how it treats its customers.”